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bne November 2017 Cover story I 29
advantage that is the legacy of the change of system from socialism to capitalism. But that model has almost run its course. While average wages remain below those of the EU average, they won’t for long.
The CEE countries will have to change their model and concentrate more on domestic demand to maintain growth. However, politics remains a distrac-
tion. The swing towards right wing and popular Eurosceptic polices is a distrac- tion, driven by leaders who were largely brought up in the old system – in the middle of October Czech president Milos Zeman was pictured brandishing a toy machine gun with a bottle of Becherovka as a magazine and the words “For Jour- nalists” scrawled on the side. However, the polls show that the people and businesses are a lot more satisfied with the EU deal than the headlines would suggest. Clearly there is no going back.
The region has two big advantages when it comes to adapting to the new realities. The first is the technology revolution that is currently under way. As bne IntelliNews reported in another recent cover story “Eastern Europe’s blockchain revolution” the benefit of starting from scratch is you can go straight to state-of-the-art. So much money has been sunk into existing technology in the west that the idea of just throwing it all away and replacing it with the leading modern tech is anath- ema to companies and governments. Russia, Ukraine and Georgia are already experimenting with putting property registers on a blockchain and Russia’s biggest retail bank Sberbank already has probably the best IT system in Europe,
a $1bn super-cooled supercomputer to coordinate its 25,000 branches spread over 8 time zones in real time.
The other big advantage is also the
most boring. Accession to the EU in 2003 brought cash and access to new markets, but the real game-changer were the ready- made institutions they were forced to join.
Emerging Europe remains plagued by corruption and illiberal rhetoric and they are a function of dysfunctional institutions. The further east you go the worse the problem gets. In absence of working courts and proper checks and
balances, corruption becomes the system and in this sense Russia and Ukraine are in the same boat irrespective of Kyiv’s European values aspirations. Without functioning institutions corruption becomes the system. Largesse is the
only way to bind minions to leaders. Russian president Vladimir Putin has done it by promoting the so-called stoligarchs; Ukrainian President Petro Poroshenko is doing the same thing, dragging his heels despite enormous pressure from Ukraine’s donors.
Anti-EU rhetoric in Central Europe is also shrill. Hungary is the most obvi- ous example where Hungarian prime minister Viktor Orban has launched a
Baltics industrial production
“Stop Europe” campaign. More recently Poland has joined the fray with a series of openly regressive laws that are designed to defang EU institutions and weaken the independence of the judiciary in particular. And Czechia has also become more Eurosceptic following the recent parliamentary elections in October.
Despite the Eurosceptic white noise, the populations of CEE are well aware of the benefits of EU membership – more and better job opportunities, which is what they care about most (see related piece on Visegrad poll). And that is the copper bottom that will carry Central Europe through into the next phase of
its prosperity.
Baltics inflation
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